The Trillion-Dollar Industry That Will Impact Every Stock

06.11.19

Gone are the days of pleasantries where criminals would send you a ransom note in the mail, with letters cut from magazines, demanding that you send “X” amount of money or else. Now, all it takes is a single email. If you click it, they can steal your personal information in a flash. This method is known as “ransomware,” a rather fitting name, if you ask me.

According to the CISA, ransomware “is a type of malicious software, or malware, designed to deny access to a computer system or data until a ransom is paid. It typically spreads through phishing emails or by unknowingly visiting an infected website.” If the victim takes the bait, their personal information gets stolen, and the thief tries to extort them for thousands or even millions of dollars.

So, what if I told you that this happened to an entire city?

That is exactly what’s happening in Baltimore, MD, right now. Not much is known about the hackers, except that they want 13 bitcoins’ worth of ransom. (That’s about $100,000.) And for over a month, the Baltimore government has been unable to process people’s water bills, property taxes and parking tickets.

For a while, no one was even able to buy a house! And to this day, city employees are still locked out of their email accounts, doing all their business through Gmail instead.

If this is the first you’ve heard of it — that’s probably because Baltimore’s head of I.T. was keeping a lid on it. It is pretty embarrassing for the city. While Baltimore rightly refused to fork over the 13 bitcoins, the whole incident exposed the need for over $18 million of spending on upgrades (and lost revenues). If they’d done it earlier, maybe Baltimore could also have avoided a worrisome attack on their 911 system last spring!

But it’s not just governments that are going to become big spenders on cybersecurity. Corporations will, too. And this is going to have a material effect on stocks.

In fact, it already has. Just look at Equifax (EFX).

The cyberattack on this Top 3 credit rating agency — in which 143 million people had their most sensitive information stolen, and the thief vanished without a trace — may have been almost two years ago now. But Equifax is still feeling the effects.

EFX fell 35% on the news…and has yet to recover. Then in late May, Moody’s downgraded their outlook on EFX — the first time they’ve ever done so because of poor cybersecurity. Between settling lawsuits, paying fines and patching up their systems, Moody’s expects that the 2017 breach “will continue to hurt the company’s profit and free cash flow for the foreseeable future.”

It’s not stacking up very well in my Portfolio Grader, either. If you take a look at the image below, you can see that its fundamentals are very weak.

For a company that’s worth more than $18 billion, has been around for 120 years and is so intimately involved in our lives and businesses…those are some pretty dismal stats.

This is just one example. Just about every company will need to step it up, if they want to survive in this new world of data breaches and “dark web” hackers.

Microsoft (MSFT) – which, for its part, is an A-rated “Strong Buy” in my Portfolio Grader – certainly has an eye on its cybersecurity. In fact, it just put out an open call, asking hackers to attack Microsoft Azure!

Like many other savvy tech companies, Microsoft often relies on these “white hat” hackers to expose weaknesses in Windows, Office and its browsers before the bad guys do. Now it’s doing the same for Azure, its suite of cloud data storage services. Basically, this is Microsoft’s answer to Amazon Web Services – a huge profit driver for Amazon (AMZN) – and when it comes to customer data, trust is everything. No one can afford to be the next Equifax.

Globally, Gartner forecasts security spending to be more than $124 billion just this year. That number is set to double to $248 billion by 2023. And after that, I see it going to $1 trillion. For its part, the Trump administration requested about $11 billion for cybersecurity in its 2020 budget.

So, while MSFT is undoubtedly a high-quality stock, I’d prefer to invest in a recipient of all this cybersecurity cash.

The One AI Company Set to Corner the Booming Cybersecurity Industry

My favorite cybersecurity play is a company that has developed a cunning detection system that can analyze past criminal behavior and predict the next attack, using pattern recognition and machine learning — in a word, artificial intelligence (AI).

Founded in the early 2000s, right at the dawn of the “Internet Age,” it’s become a leader in the field of cybersecurity.

Not only is this company helping protect Microsoft Azure and Amazon Web Services…its other clients include Sprint (S), Leidos (LDOS), and even the Steelers and Boston Red Sox. And its revenues have surged from just $2 million in 2002 to $1.8 billion today.

With its cutting-edge AI system, I believe this company is going to be grabbing a large slice of this potential $1 trillion market. The company not only has strong earnings growth — it gets a solid rating for its Quantitative Grade as well. Meaning the stock is enjoying enough buying pressure to deliver further profits to its investors in the future.

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